Need A Business Vehicle? Here’s What To Consider

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The selection of a business vehicle for your business will be a key decision to be made when starting up your business.

This decision requires careful thought and consideration as the consequences of choosing an unsuitable business vehicle could risk you losing your personal savings and even expose you to the risk of bankruptcy.

The few primary aspects which you should take into consideration when choosing your business vehicle include:

  1. Budgets and procedures

Firstly, ascertain the budget which you would allocate for the formation and running of your business. The costs of forming certain business vehicles are higher as it takes a longer time to set up and the process of setting up these business vehicles are more tedious. The operating and administrative costs are also higher as these business vehicles are required to comply with the mandatory bookkeeping requirements imposed under the law.

  1. Confidentiality concerns

For certain business vehicles, information with respect to its owners and the basic financial information of the business is publicly available. If confidentiality is a huge concern for owners of the business, a business vehicle which does not require the information of its owners and its financial information to be published will be the more favoured option.

  1. Future funding

If you aspire for your business to grow and expand, it is likely that your business would require additional funding and capital in the future. It is therefore important to choose the right business vehicle which will enable you to grow and expand your business. Certain business vehicles will render the business with limited access to capital where the owners will have to rely on their own funds or creditworthiness to secure a loan for growing or expanding the business.

  1. Business continuity/ transferability

Certain business vehicles are closely connected to the identity of its owner(s). These are vehicles which will dissolve following bankruptcy, death or resignation of one or more of its owners. If your intention is to keep the business despite bankruptcy, death or resignation of the owners, choosing a business vehicle which provides for business continuity and allows for the ownership of the business to be transferred should be the key consideration.

  1. Liabilities of owner/ shareholders

Certain business vehicles do not have not a separate legal identity from its owners. The owners of the business are responsible for all the debts and liabilities incurred by the business and must bear all losses of the business. This gives rise to the risk of bankruptcy of the owners as there is no distinction between the assets of the business and the owners.

In Malaysia, the most common types of business vehicles are as follows:

Unincorporated vehicles: (i) Sole proprietorship and (ii) Partnership

Incorporated vehicles: (i) Limited liability partnership (LLP) and (ii) Private limited company (Sdn Bhd)

A summary of the key considerations in respect of each of these business vehicles is as follows.

 

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About the Author:
This article was written by Zuan Yin, Poh (Spring),  Partner of this firm.
The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.

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